Paying taxes

The Redwood Blog

Published: 16 June, 2015

Mike Redwood

A couple of years ago I had an opportunity to make a visit to Ethiopia; a country I really like and where I have been a regular visitor since the mid 80s. Work does not take me there now so finding the chance to visit is always exciting.

On my trip I was able to tour some of the units that the tanner and leather products maker, Pittards has built to make gloves and leather goods. A new departure for tanners but one we are seeing more often. It is an immediate reminder of the huge number of jobs that are created by every piece of leather a tanner produces.

Equally important was that as the Pittards Manager who runs the plants, Tsedenia Mekbib, explained to me these workers all now have bank accounts and their income tax is paid directly to the government. These are workers Pittards has trained and were almost all either unemployed or in the "informal" economy beforehand. Bringing large numbers of the workforce into the regular tax paying economy is what is needed to pull emerging countries out of poverty and diminish their dependence on foreign aid.

By contrast Pakistan, with a population of around 200 million, has only 0.5% who are willing to pay tax. The Centre for Investigative Reporting published at the end of 2013 emphasised this and made the point that the rich were just as bad as everyone else with 10% of those in the national and regional assemblies not even having a tax number and less than half paying any tax.

So while Pakistan is currently getting a huge windfall as a result of the drop in the price of oil, the underlying improvements it needs are never going to happen until there is a culture change that clearly has to start at the top. Farman Bokhari, writing in a recent Financial Times article, highlighted an avoidance trick that factory owners are using. They buy farmland - where there is a tax amnesty - and decide with their accountants to overstate their income from the farm and adjust downwards their other income. The legislature is loaded with landowners who will not change the tax laws. Others just "dodge tax by colluding with corrupt tax officials". In the leather industry around the world we have seen instances of adjusting invoice levels and trading through overseas friends and families to build up hidden accounts in Dubai or Europe, but this is on an even more dreadful scale. If business people do not even pay their due taxes honestly, what chance do we have with integrity in waste management and banned substances? We do not know where most of the tanners fit in this equation, but we do hope that they largely fit amongst the honest tax payers.

And what chance do countries like Pakistan and so many others like it have of escaping poverty in the long term if they cannot collect properly due tax?